Police are investigating allegations of “fraudulent activity” at the airline Varsity Express after its Oxford to Edinburgh flights were suspended.

The entrepreneur behind the operator, Martin Halstead, vigorously denied his firm had done anything wrong.

Mr Halstead, 23, also vowed to refund passengers who have bookings with the airline, but admitted inventing a fictitious character called Will Gilligan – who it was claimed was the firm’s commercial director.

Last Monday, passengers were left stranded in Edinburgh when the airline was grounded.

Mr Halstead insisted refunds for between 350 and 400 passengers who had booked trips with Varsity but had not yet travelled were being processed. He said they would be reimbursed in full within 14 days.

It is the second time one of the former Abingdon School pupil’s airlines has collapsed.

His first firm, Alpha One Airways, offering flights from the Isle of Man to Blackpool and Southampton, ceased trading after six weeks.

At the time Mr Halstead was 19 and had earned the nickname ‘Baby Branson’.

Mr Halstead said: “I have certainly never acted fraudulently and I don’t think anyone within my company has.

“I have protected the interests of our passengers and am making sure they get their money back.

“It’s an incredibly unfortunate set of circumstances.

“I have tried to act as responsibly as possible so passengers’ money is not being used at all until flights have flown.

“The Will Gilligan thing is a bone of contention but I don’t think anyone’s acted illegally.

“He (Gilligan) was never a director of the company at all just an email address to keep me out of the public eye initially.

"It was never the intention for me to be the public face of the company because it would dent the credibility of the company off the back of Alpha One.

“There’s nothing illegal about using a pseudonym.

“I went along with it. I never saw it as an issue because Will Gilligan was never actually conducting any business for the company.”

It also emerged Varsity owes cash to Oxford United after taking two advertising hoardings at the ground.

Police spokesman Rebecca Webber said: “We are investigating two reports of fraudulent activity in relation to Varsity Express.”